Sternberg v. O'Neil
| Decision Date | 16 April 1987 |
| Parties | Richard STERNBERG, Plaintiff, v. Thomas F. O'NEIL, Michael G. O'Neil, John O'Neil, Shane O'Neil, William M. Regan, Frank Shakespeare, Hubert J. DeLynn, John B. Poor, Sr., John B. Fitzgerald, Kenneth R. Frankl, David S. Henkel, Richard W. Jencks, James J. Kerley, Alfred J. Moccia, James T. Morley, A. William Reynolds, William F. Spitznagel, Richard B. Tullis, William B. Walsh, Lester Garvin, Warren J. Hayford, D. Bruce Mansfield, T.E. Pittenger, John J. Dalton, Defendants, and Gencorp Inc. and RKO General, Inc., Nominal Defendants. . Submitted: |
| Court | Court of Chancery of Delaware |
BERGER, Vice Chancellor.
Plaintiff brought this double derivative suit against Gencorp Inc. ("Gencorp"), its wholely-owned subsidiary, RKO General, Inc. ("RKO General") and various past and present officers and directors of both corporations. The complaint alleges, among other things, that the individual defendants failed to administer the affairs of Gencorp and RKO General in a fair and careful manner and that they have been wasting the assets of both corporations by promoting and implementing a cover-up of wrongdoing in proceedings before the Federal Communications Commission ("FCC"). The individual defendants are charged with breaches of fiduciary duty allegedly causing RKO General to be disqualified from engaging in the broadcasting business.
All of the individual defendants moved to dismiss the complaint on the grounds that it is barred both by res judicata and the statute of limitations. In addition, several of the individual defendants and Gencorp, an Ohio corporation, moved to dismiss for lack of personal jurisdiction. If Gencorp is dismissed, the remaining defendants seek dismissal on the additional ground of failure to join an indispensable party. For the reasons that follow, I conclude that the complaint does not allege a constitutionally permissible basis for the assertion of personal jurisdiction over either Gencorp or those individual defendants who are not directors of RKO General. In addition, I find that Gencorp is an indispensable party. Therefore, the complaint must be dismissed as to all defendants.
To determine whether or not in personam jurisdiction exists, a two step analysis must be applied. First, the Court must decide whether Delaware law provides a basis for the assertion of jurisdiction. If so, it must then decide whether that assertion is consistent with the due process guarantees of the Fourteenth Amendment. See La Nuova D & B S.p.A. v. Bowe Co., Inc., Del.Supr., 513 A.2d 764 (1986); Rabkin v. Philip A. Hunt Chemical Corp., Del.Ch., Civil Action No. 7547, Berger, V.C (December 4, 1986).
To satisfy the first prong of this test, plaintiff relies on 8 Del.C. §§ 371 and 376, the statutes governing a foreign corporation's qualification to do business in Delaware and the manner in which such a corporation may be served with process. Gencorp does not dispute that it is registered to do business in Delaware or that it was properly served through its registered agent. Thus, the only issue is whether the assertion of jurisdiction over Gencorp in this case satisfies federal constitutional requirements.
Plaintiff argues, in essence, that this second prong of the jurisdictional test is automatically satisfied where a foreign corporation has registered to do business in this state. According to plaintiff, "where a corporation is granted a license to do business," there is "presence," and where there is "presence ... the jurisdiction of the court is undoubted." Plaintiff's Brief at 4. Alternatively, plaintiff argues that registration to do business as a foreign corporation constitutes consent to suit.
None of the cases cited by plaintiff that were decided after International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945), base a finding of personal jurisdiction on the theory of corporate "presence." This is not surprising, since the corporate presence approach was abandoned in International Shoe. In that case, Chief Justice Stone observed:
To say that the corporation is so far "present" there as to satisfy due process requirements, for purposes of taxation or the maintenance of suits against it in the courts of the state, is to beg the question to be decided. For the terms "present" or "presence" are used merely to symbolize those activities of the corporation's agent within the state which courts will deem to be sufficient to satisfy the demands of due process.
Id. at 316-317, 66 S.Ct. at 158. The Supreme Court went on to describe as a "legal fiction" the practice of implying consent to service and suit from a corporation's "presence in the state through the acts of its authorized agents." The Chief Justice concluded that it was really the nature of those authorized acts which justified the fiction. Id. at 318, 66 S.Ct. at 159. The oft quoted holding in International Shoe is that, to obtain personal jurisdiction over a foreign defendant, as a matter of due process, the defendant must have "certain minimum contacts with [the forum] such that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.' " Id. at 316, 66 S.Ct. at 158, citing Milliken v. Meyer, 311 U.S. 457, 463, 61 S.Ct. 339, 342, 85 L.Ed. 278 (1940). The minimum contacts standard has been reaffirmed on numerous occasions, and its applicability was expressly expanded to include all assertions of state court jurisdiction in Shaffer v. Heitner, 433 U.S. 186, 203, 97 S.Ct. 2569, 2579, 53 L.Ed.2d 683 (1977).
Notwithstanding the continued viability of the International Shoe holding, plaintiff argues that the minimum contacts analysis does not apply to cases such as this, where a foreign corporation has registered to do business in the forum state and, thus, may be deemed to have consented to suit. While it does not appear that the Supreme Court has squarely addressed this issue, from its analysis of related issues and, consistent with the weight of authority in the lower federal courts, I conclude that the minimum contacts standard must be satisfied even where a foreign corporation is registered to do business in Delaware.
In Perkins v. Benguet Consolidated Mining Co., 342 U.S. 437, 72 S.Ct. 413, 96 L.Ed. 485 (1952), decided shortly after International Shoe, the Supreme Court suggested that something more than registration to do business was necessary to obtain personal jurisdiction over a foreign corporation. In Perkins, the Court was required to decide whether or not the business done in Ohio by a foreign corporation "was sufficiently substantial and of such a nature" as to permit a finding of jurisdiction on an unrelated cause of action. Id. at 447, 72 S.Ct. at 419. The Court did not focus on the concept of consent. However, in its general discussion of the kind of activities which would make it reasonable and just for a state to assert jurisdiction over a foreign corporation, the Court stated:
The corporate activities of a foreign corporation which, under state statute, make it necessary for it to secure a license and to designate a statutory agent upon whom process may be served provide a helpful but not a conclusive test.
Id. at 445, 72 S.Ct. at 418. This statement is consistent with the Supreme Court's observation in International Shoe, noted above, that the justification for the fiction of implied consent must be based on the nature of the foreign corporation's acts within the state.
State and lower federal courts, the only ones to squarely address the issue presented here, have split over whether the appointment of a registered agent, without more, is an adequate basis for personal jurisdiction on an unrelated cause of action. As plaintiff argues, some courts have continued to hold that appointment of a registered agent satisfies due process. E.g., Vogel v. Tenneco Oil Co., 276 F.Supp. 1008, 1012 (D.D.C.1967) (); Anderson v. United States, 220 F.Supp. 769, 770-771 (E.D.Pa.1963) ().
Other courts, however, have held that in the wake of International Shoe and its progeny, even if a corporation has appointed a registered agent who is properly served, jurisdiction can only be obtained where minimum contacts are present. In re Mid-Atlantic Toyota Antitrust Litigation, 525 F.Supp. 1265, 1277-1278 (D.Md.1981), aff'd, 704 F.2d 125 (4th Cir.1983); Energy Reserves Group, Inc. v. Superior Oil Co., 460 F.Supp. 483, 504 (D.Kan.1978); Schreiber v. Allis-Chalmers Corp., 448 F.Supp. 1079, 1091 (D.Kan.1978), rev'd on other grounds, 611 F.2d 790 (10th Cir.1979). The reasoning behind these decisions appears to be, in part, that the corporation gives consent to personal jurisdiction in exchange for the right to do business and thereby avail itself of the benefits and protections of the laws of the forum. In re Mid-Atlantic Toyota Antitrust Litigation, 525 F.Supp. at 1278. If the corporation conducts no business, it has not so availed itself; "there is no bargain between the corporation and the forum state and there is no meaning to the corporation's...
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Sternberg v. O'Neil
...of personal jurisdiction over either Gencorp or those individual defendants who are not directors of RKO General." Sternberg v. O'Neil, Del. Ch., 532 A.2d 993, 994 (1987). The Court of Chancery also found that GenCorp was an indispensable party. Id. It, therefore, held that "the complaint m......
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